Saturday, January 30, 2010

On January 26-28, the Ministry of Agriculture called in representatives of its elite "dragon head" enterprises (also known as "leading" or "flagship" enterprises) to instruct them on the communist party's new direction for businesses. The vice-minister of agriculture, Chen Xiaohua, outlined China's new strategy for agricultural companies at a "training class" for representatives of national-level agricultural "dragon head" enterprises. At the training, the company representatives were devoted to "serious study" of the central communist party's work meetings on the economy, rural affairs, and agriculture. The meeting is an example of how the party/government instructs large businesses who get certain benefits from the government on how to carry out the party/government's strategy. If you're watching what's happening or doing business in China, you should be aware of the behind-the-scenes string-pulling that is orchestrating the dramatic changes you are seeing.

The guidelines presented by Chen are described by Farmers Daily as a transformation of the mode of development. The strategy is wide-ranging, including an emphasis on science and technology, vertical and horizontal integration to form bigger companies with a wider geographic scope of operations, product safety and quality, and environmentally-friendly production. The broad goal is to "pull along" farmers--integrate small farmers with the modern marketplace and raise their incomes.

The first point emphasizes science and technology. Companies are encouraged to spend more on technology. They are also urged to "absorb" foreign technology and equipment (joint ventures beware!) They should cultivate proficient technicians, and form cooperative relationships with research institutes, universities, and extension stations to do research and disseminate technology. This is analogous to the alliance between agribusiness and the Land Grant system in the U.S.

Companies are encouraged to pursue marketing. Do research on consumer trends. Develop branding strategies and integrate the strategy between raw material production, processing and marketing stages. Companies should form marketing links with agricultural producers. They should explore new domestic and foreign markets, and increase agricultural exports.

Chen urges companies to exert greater control over the farm source of raw materials. They should participate in programs to increase production of horticultural, livestock, and aquaculture products, and implement controls on pesticides, fertilizer, veterinary drugs, and feeds in production bases to clean up production. They should set up field-to-table traceability systems that package products shortly after production using a label that displays logos (for the brand and certification) and a product code. Companies should implement certifications.

Companies are instructed to form cooperative alliances. This includes mergers and acquisitions to form conglomerates as well as separate companies cooperating to form "industry clusters." The goal is to form companies that operate in multiple regions and to form a completely integrated production-processing-marketing industry chain.

The instructions then shift to environmentally-friendly production and "carbon economy" to conserve resources, reduce pollution, and reduce CO2 emissions. Companies should pursue technologies and strategies that conserve resources, water, land, energy, pesticide, and seed. They should pursue "recycling agriculture." Companies should find ways to utilize by-products and waste from processing.

Finally, companies are reminded that the overarching goal is to benefit farmers and the rural economy. They should purchase raw materials under contract from farmers, and ally with farmer cooperatives. Finally, there is a call for the all-important "market order." Companies are reminded to abstain from a laundry list of company sins: don't suppress prices paid to farmers or arbitrarily reject their products, don't engage in cut-throat competition or price wars, don't produce or sell fake or shoddy products.

If these strategies sound like they came from a management consultant with an MBA, they probably did--the Communist Party schools for training party officials are now quasi-MBA programs. The strategies are well thought-out and make a lot of sense. In the background is a shift toward larger elite companies with better connections to banks and technology (which means better connections with the government) and a freeze-out of small entrepreneurs who bring "disorder" to the market. The attendees of this training are members of these elite companies designed by the government as "dragon heads." Efforts to build a more integrated industry with safer, environmentally-friendly production implicitly entails strengthening the position of big, well-capitalized government-connected companies. And time and time again, the small entrepreneurs undermine these well-intentioned strategies by selling cheaper and offering greater convenience and flexibility. It is the small entrepreneurs who give China's economy its dynamism and competitiveness (see Yasheng Huang, Capitalism with Chinese Characteristics: Entrepreneurship and the State). Thus, to make these strategies work, a brutal crack-down on small companies is required to maintain "market order." It's not clear whether these strategies can successfully be carried out or whether the government-industry partnership it entails is a healthy path for China.

Tuesday, January 26, 2010

Last year, Chinese authorities introduced a new program aimed at stabilizing pork markets by buying up pork when the ratio of hog to grain prices falls below a certain threshold.

A Sept. 3, 2009 article about the selection of a company in Mengcheng of Anhui Province reveals a little about how the pork purchases work. According to the article, provincial authorities chose some large scale processing enterprises near central cities to purchase up to a 4-month inventory of frozen pork for the reserve program. Companies had to have at least 2000 tons of temperature-controlled warehouse capacity and daily slaughter capacity of 1000 head or more. The companies were chosen through a competitive bidding process. Dongsheng (East Rising) company, assigned 1,200 tons of frozen meat reserves, receives lump sum financial support of 800,000 yuan for its costs.

"Reserve purchases bring the “reservoir” effect into play, preventing declines in hog prices, stabilizing county-wide production of hogs, preserving profits of hog farmers, promoting stable development of the hog and pork markets."

Friday, January 22, 2010

An article that appeared in the Chongqing Evening News last September reports the story of Mr. Chen who found a bottle of toxic pesticide mixed in with his rice. The story provides an example of the combination of ignorance, minimal regulation, and callous disregard for other peoples' welfare that creates China's severe food safety problems.

Mr. Chen bought a 10-jin bag of rice at the supermarket, brought it home, and as he was preparing dinner, his child noticed a small plastic bottle in the bag. The child exclaimed, "There's a bottle in the rice!"

Photo from Chongqing Evening News

The bottle was about the width of a finger and contained a powder. It had a tiny hole drilled in the side. Mr. Chen picked up the bottle, and it gave off a strong odor. He examined the label and found that it was a highly toxic pesticide called aluminum phosphide. The label said it was forbidden for home use. As he thought about it, Mr. Chen became more nervous, recalling many other bags of rice containing bottles that he nonchalantly set aside.

He took the bottle to the supermarket and confronted the manager. "You sold me rice that was contaminated with pesticide!" Mr. Li, the manager, impatiently explained that the bottle was there to kill insects.

The reporter went to the supermarket to investigate. Mr. Li, taking a bottle from a package of beans, said, "See, this is the bottle he (pointing at Chen) brought back." Immediately, the air was filled with a strange odor. A small hole had been drilled in the side of the bottle, letting the pesticide escape.

Mr. Li said he has sold bags of rice for 3-4 years and could not find a way to prevent pests from infesting the rice during hot weather. Last year, someone told him aluminum phosphide is good for killing insects, so he bought some at a pesticide shop at one yuan per bottle. It was in small tablets and looked like calcium. He explained the hole in the bottle is to let the pesticide disperse when it becomes moist.

Li initially didn’t believe it was toxic. But after checking on the Internet he found that aluminum phosphide emits a colorless, odorless gas when it becomes wet. His expression stiffened, “I don’t dare use this stuff to kill insects any more.”

Later that afternoon, at a shop that sells seeds and fertilizer, the shelves were loaded with cartons of aluminum phosphide. The manager said it has been produced as a pesticide for several decades. It is often used after harvest as an insecticide on dried corn and rice. It is highly toxic, but anybody can buy and use it.

According to Mr. Li, the supermarket manager, many rice-sellers use this method to kill insects. This was confirmed by visits to three other supermarkets. One manager thinks the discovery of the supermarket’s method by customers is “hard luck.”

According to a manager of another supermarket on the fourth ring road, ”Initially, some people wrapped the aluminum phosphide in a cloth and put it in the rice. Now, many think this is too much trouble. They simply put a hole in the pesticide bottle.”

How can you not know aluminum phosphide is toxic? This manager answered: "1 kuai can keep bugs out of 3,000-4,000 jin of rice and the people who buy it don’t die on the spot. Add some plastic powder to rice noodles, use black dye to create 'black' rice… in this society to do business you don’t think about these distorted ideas, you make money however you can."

The reporter went to a New Century supermarket outlet where there were many kinds of rice, flour, and beans. There was no sign of insecticide in the bins or on counters. How do they control insects? The manager responded: “Our store has never considered pest control in grain and oil products!” The manager explained, each batch of rice and beans is on the shelf no more than four days before being sold out. We have good indoor ventilation and the temperature is kept at 26 degrees, so insects don’t become a problem in the store. If insects are found in rice coming from the warehouse, we return the product intact. We don’t put it up for sale.

Then the reporter went to the rice shop at White Horse market, one of the biggest markets in the city. There were over thirty 25-kg bags of rice stacked up, and there were several tobacco leaves and some garlic between every two rice bags. The boss explained, "Tobacco leaves and garlic are our insecticides! This local method is often used. We have sold rice for over 3 years, and everyone knows I don’t use chemical insecticides."

Next, the reporter went to the Panxi wholesale market. In a rice shop there, the reporter pretended to need something to kill insects. The boss told the reporter, "There's a stall that sells pesticides next to the public toilets in the market--that’s where we buy them—=they’re really effective!" The reporter asked how to use pesticides to kill insects, and the response was, "The owner of that stall can tell you how to use them. Do as she says and you can’t go wrong!"

The reporter went to that stall where an old lady handed over a bottle containing four aluminum phosphide tablets. Each bottle’s label has a picture of a skull and crossbones and a warning that says "highly toxic."

The reporter asked: “I have 1000 kg of rice, how many bottles should I use?” The old lady replied, “Use at least 10 bottles and that will do it! One yuan for each bottle.” The reporter found directions for use on the bottle-—“grain and seed fumigation, use one tablet for each 75-150 kg.” Ten bottles are far more than recommended. The reporter suggested this to the lady, who said, “There are many people in the wholesale market buying this insecticide from me. So far, nothing ever happened. The tablets are not expensive and using more is more effective!”

Mr. Zhou, the director of the Chongqing agricultural extension and testing station, explained that “56% aluminum phosphide tablets” are a common insecticide used in crop fumigation, mainly for killing insects in grain and seed at warehouses. There are strict standards for using it: one tablet for each 75-150 kg of grain or seed. The tablet should be wrapped in gauze, placed 20-30 cm inside the grain in a sealed container for 7 days or more. After fumigation, the grain should be removed from the container, exposed to air for five days or more and only then sent to the market.”

Excessive use can leave residues on food which can be toxic. It can release a toxic gas when wet. Breathing in 0.14 grams can be fatal. Director Zhou said aluminum phosphide tablets cannot be used indoors. Humans and animals must not be present when the pesticide is being used. There must be no fire or smoke in areas where it is stored since it emits a highly flammable gas. After using, one must wash face and hands. If it catches fire, water cannot be used; sand must be used to put it out.

In October 2008, a 24-year-old young man in Sichuan died in his sleep from poison gas when aluminum phosphide was used in a medicinal herb warehouse where he worked. He was found dead on his bed, his face turned pale. Two years ago, in the suburbs of Xi’an, seven people were poisoned by gas that escaped when a medicinal herb trader used aluminum phosphide to kill insects. Fortunately, the folks in Xi'an were rescued.

A perusal of web sites shows that aluminum phosphide is indeed a highly toxic chemical that is used a grain fumigant or rodent poison. In the United States it may only be purchased by certified applicators. According to Wikipedia, a wealthy British gentleman used it to commit suicide in 2002. The hospital ward had to be evacuated because his body was giving off toxic fumes. In 2009, two children died in Saudi Arabia when they breathed in fumes from the house next door that was being fumigated.

Thursday, January 21, 2010

China's "Go Global" (literally, "Going Out" or "Zou Chu Qu") strategy of foreign investment to raise crops overseas has gotten a lot of bad publicity. There was an outcry in the Philippines over a Chinese project a couple of years ago, and last month the Kazakhstan President provoked an uproar in his country when he floated a plan to rent 1 million hectares to China.

No one knows too much about this strategy. An article by several Chinese authors in International Cooperation last year described the strategy and offered a frank critique. The program offers a window into China's intertwining of government and business in which companies are enlisted to work toward achieving the government's objectives. This strategy seems to be a very expensive way to get more food.

The strategy has been around since the government picked some companies to become international players in the early 1990s. The 2007 No. 1 Document of the Communist Party called for rapid implementation of "Go Global." The strategy seems to encompass a confusing mix of objectives that include promoting agricultural exports, foreign cooperation, external assistance, and direct investment in agriculture overseas. It includes inward foreign investment, technology, and contracting out Chinese laborers to do projects overseas.

The “Go Global” strategy is a government-industry partnership with "enterprises under the leadership of government policy for the goal of profits and cooperation on the basis of mutual benefit." The projects seem to be run by provincial governments and companies affiliated with them. The companies are mostly state-owned agricultural companies with roots in the centrally planned economy. Many are State-owned farms (Nong Ken) and government-affiliated seed companies. One company is named after the famed rice breeder Yuan Longping, but its description sounds like a consortium of provincial seed companies.

The strategy is described as meeting the needs of companies (for profits) while achieving sustainability of China's agriculture. China has advantages in funding, crop breeds, and technology but it lacks land. Meanwhile, countries in Asia and Africa have plentiful but underdeveloped resources. The article explains, "We have 30 years of experience in reform and opening in agriculture. Having basically solved our food and clothing problem, the next step is to solve the sustainable development problem in agriculture."

The projects include renting land for growing crops, purchasing fishing licenses, setting up production and processing bases, carrying out agricultural resource development, and processing and trade of agricultural products. About 1,500 fishing boats were engaged in foreign fish production in 32 countries. Some companies set up production bases for grain, soybean, natural rubber, oil palm, sisal, and cassava in Russia, Southeast Asia, Central Asia and Latin America. Investments include animal and plant protection, infrastructure agriculture, machinery, rural energy, and bioenergy.

Heilongjiang’s State-owned farms started renting land to plant grain in Siberia in 2004 and area reached 634,000 mu in 2007 (over 100,000 acres). They also invested in a grain pretreatment center and liquid fertilizer processing. A Guangdong state farm started building a 500,000 mt Southeast Asian natural rubber production base in 2002, enlarged five rubber processing factories, steadily built up a rubber project in Malaysia, and now has a production capacity of 206,000 mt. There is a large rice project in Cuba. A large soybean-production project utilizing barren land in Kazakhstan is rumored to begin this year.

Lack of funds, small scale, low competitiveness are general problems for “Going Global” enterprises. At the end of 2007, China's foreign investment in agriculture was $1.2 billion, only 1% of the total. Guangxi has over 20 enterprises with foreign investment, but not many are strong companies. The largest investment is just 20 million yuan. Most "go global" agricultural enterprises from Chongqing are relatively weak, their investment is small, financial difficulties are big, and ability to bear risk is low. Of five companies that invested in Laos, four withdrew. The one Chongqing company left in Laos has invested in a grain mill, but progress has been slow.

The article expresses frustration in aligning government and company objectives. Governments have aid and technical exchange objectives that don't always mesh with companies' profit-making objectives. In some projects, enterprises were at first eager to join the project but pulled out, leaving the government in charge, after seeing that the operation was not going well. Projects have a long timetable and many risk factors that can cause them to flounder before they bear fruit.

Companies are frustrated by slow approvals from Chinese officials, lack of policy and market information about the countries they are investing in. Companies lack foreign language capability, understanding of international regulations and management, local labor force quality, and local customs. Chinese companies investing overseas suffer from dual taxation. They face tariffs and obstacles to exporting seeds and some countries prohibited export of grains and biofuels when commodity prices spiked. Companies find they have a hard time competing without subsidies and favorable policies they enjoy in the Chinese market.

The article complains about too many weak companies starting up rice seed production bases in Southeast Asia. Some of these companies--including some with little experience in agriculture--used a low-price, low-quality strategy with no after-sales service. Their poor performance damaged the reputation of Chinese seed companies overseas.

Several strategies are outlined. The first is “Government sets the stage, enterprises sing” where the government lays groundwork as a platform for enterprises. The China-Philippines technical cooperation project was designed for participation by enterprises that would lay the foundation for market operations, creating conditions for sustainable development. The project’s designated unit-–Yuan Longping High-tech Co.--utilized investment from both governments, which reduced the costs in the initial phase. Some 40 Chinese rice breeds were chosen, including 6 for testing and evaluation all over the Philippines and only cost the company $500,000 in the initial stage. Presently the company has invested $1 million and constructed Longping High-tech Philippines Research Center.

Another model is "Enterprise Goes First, Government Follows," in which certain support is given to agricultural projects with good performance. In this model the government supports enterprises that already started agricultural training, seed demonstration and extension projects.

The article recommends establishing a subsidy system for "going global" firms. They should get various subsidies, including interest subsidies and emergency assistance. They should get priority and assistance in raising capital through stock market listings. "Going global" enterprises should get preference when applying for national high-tech industry dissemination projects, agricultural processing projects and technology creation interest subsidies. An insurance system to protect companies from risks of failed projects is recommended. Companies operating overseas should benefit from domestic agricultural subsidies and get subsidies for machinery.

The weekly corn report from the National Grain and Oils Information Center reports that the difference in corn prices between northeast and south has temporarily narrowed. The corn price in Dalian and elsewhere in the northeast has been rising as farmers have been hesitant to sell corn. Corn purchases from farmers in the northeast are well behind last year's pace at this time. Meanwhile, in Guangdong the price has been more or less stable. Starting in November, large quantities of corn were transported south. NGOIC says commercial corn inventories in Guangzhou are now about 300,000 metric tons, much higher than normal inventories of 150,000-200,000 metric tons.

The cost of shipping from Dalian to Guangzhou has fallen from 170 yuan per ton in November to 90 yuan now. Nevertheless, the profit for traders has shrunk from 50 yuan per ton to nothing due to the higher Dalian price. NGOIC says some traders are keeping an open interest in corn for two reasons. One is to be ready in case a steady customer needs some corn. Second, traders are hoping to get a government subsidy of 70 yuan per ton for transporting corn to the south. The subsidy is withdrawn when the farmers' price goes above 0.8 yuan per jin (1600 yuan per metric ton) and the price is above that threshold now, so it's questionable whether they will get the subsidy.

NGOIC thinks not much corn will be sent south in coming weeks. As inventories in Guangzhou are drawn down the price will rise and the north-south price differential will narrow. Thus, they think the narrowing of the differential is a temporary phenomenon.

Interestingly, another piece in the NGOIC newsletter describes how the cobweb model explains volatility in Chinese corn prices, concluding that economists' assumptions of rational actors and perfect competition are unrealistic. Yet the description of how various economic actors react to interregional price differentials buttresses the powerful equilibrating process of traders reacting to market signals.

Wednesday, January 20, 2010

The pork industry is plagued by excess capacity and food safety concerns. The plan calls for eliminating 50% of "backward" hog slaughter capacity by 2015. The plan features a multilevel system consisting of small slaughter facilities that serve local markets and relatively few large mechanized facilities that produce frozen cuts of pork and processed, branded products and ship them around the country and overseas. Large cities of over 5 million people are to have 3 or less large slaughter facilities, and smaller county cities have 1 or none.

Part of the plan is to change Chinese consumers' pork consumption habits. The traditional mode is to send an entire fresh pig carcass the same day it is slaughtered to the market where a butcher cuts off slices for the shopper. The new plan wants to get consumers to start consuming frozen pork that was sliced up at a processing plant and distributed in shrink-wrapped packages. The goal is for frozen pork to account for 30% of the market by 2015 and packaged products to account for 10%.

Instead of relying on local slaughter houses in the city suburbs, the plan calls for nurturing a set of million-head slaughter-processing operations in big hog-production counties that may be hundreds of miles from cities where it is consumed. Companies should develop brands for their products, produce more processed products, utilize by-products, hold to strict standards and inspection, and treat waste.

Interregional marketing chains are to include integrated slaughter-processing-distribution centers-pork wholesale markets-chain stores and special pork shops linked with cold chain facilities. Companies are to procure more pork under contract or operate their own hog farms.

The plan hopes to promote China's pork exports. It calls for more international cooperation, adoption of international standards and animal welfare concepts, overseas acquisitions and mergers, and surmounting of foreign trade barriers.

Pork imports are not mentioned in the plan, but IF this reconfiguration of the domestic industry were to succeed, it might improve the competitiveness of of imported pork. IF Chinese consumers become receptive to frozen, packaged pork from distant factories, and IF China's own trade barriers were lowered, it's conceivable that pork from factories in the Midwestern U.S. could be as competitive in Shanghai or Guangzhou as frozen pork from Chengdu. Could China specialize in niche-market local-style pork alongside cheap imported factory-style frozen pork?

Tuesday, January 19, 2010

Farmers in a village in Pulandian, near Dalian in Liaoning Province, want to know why no hog traders have come knocking at their door lately.

Normally, at this time of the year--ahead of the Spring Festival--hog traders will come to the village and go door to door trying to buy hogs as the peak season approaches. In previous years, farmers got a good price of 6.2 to 7.5 yuan per jin. That was enough to make a profit and encouraged them to raise hogs.

A reporter got a call from a farmer looking for help to sell pigs. The reporter went to investigate and found that nearly every family in the village raises pigs or other livestock. Ten families raise 20-30 pigs and the others generally raise 4-to-5 pigs.

Few traders came to buy hogs since last November. None came after the new year, and none called on the phone either. Farmers heard that this year's price is about 6 yuan or less, about 1 yuan lower than in previous years. With higher feed prices this year, they anticipate losses at this price. A farmer named Li said there are about 150 pigs in the village that need to be sold and the villagers are approaching the festival with trepidation.

The reporter spoke with one of the traders who said that prices are down this year, but not by too much. The usual price is about 6.5 yuan, and the pork price at the market is 9-11 yuan, but this year prices are about 1 yuan lower. The absence traders in the village is not normal, so he says. He speculates that maybe it's because of the weather.

An article about the hog situation in Sichuan Province tells a similar story. Hog slaughter there was up 3.9% year-on-year in the third quarter of 2009. The sow inventory is relatively high. This report cites mainly cyclical factors. From February to May last year, prices fell sharply. There was not widespread slaughter of pigs--they credit the government's program to purchase pork for reserves. However, some farmers culled low-grade sows during the summer and then restocked as the industry recovered in July and August. Inventories are now plentiful.

Sichuan also complains about poor prospects for exports of pork. They blame technical barriers to trade in foreign countries. They also point to rising feed costs that reduce the competitiveness of chinese pork. An official from the provincial quarantine and inspection bureau recommends that a few exporting companies strengthen and consolidate their production bases, improve animal health, and develop branded processed products to regain export markets.

Wednesday, January 13, 2010

A year ago, the National Development and Reform Commission, Commerce and Trade Ministry, Agriculture Ministry, Commercial Bureaus, and import/export/quarantine administration jointly issued regulations on controlling falling hog prices. According to the plan, the government will monitor certain indicators, chiefly the ratio of hog and grain prices, and buy up pork when the hog-grain price ratio gets too low.

On January 12, an NDRC spokesman said the regulations had reduced cyclical fluctuations in hog prices and promoted stable development of the hog sector. He said last May the hog-grain price ratio went down to 6:1--the loss threshold--and farmers started losing money. After purchases of pork started in June, the hog price revived and commercial producers returned to profitability. According to NDRC surveys, in May 2009, commercial-scale hog producers’ profit averaged 18.44 yuan per head. After the market intervention, the hog price went up and the profit reached 23.16 yuan in June.

The structure of the industry is changing. The article seems to connect this to the intervention program, but it's not clear why large-scale producers would benefit more than small ones. According to Ministry of Ag surveys, over 60% of hog production is by farmers slaughtering 50 or more head per year, up 10 percentage points from 2007.

The article emphasizes with a paragraph of redundancies that the program requires extensive cooperation and coordination among different departments and different levels of government.

According to Ministry of Agriculture estimates, the national hog inventory stood at 465.9 million head at the end of November 2009, of which 48.7 million were breedable sows. Sows now constitute 10.5% of hog inventory, higher than normal. The article assures us that this means the hog supply is plentiful and there will be little increase in pork price during the spring festival. Prices could go up slightly during the holiday, and then fall a bit when demand falls off after the holiday.

According to an article on Jan. 7, the NDRC said the hog-grain price ratio was 6.58:1 at the end of December, above the breakeven point. The average wholesale price nationally was 15.51 yuan/kg, up 6.7% from the previous month. The feeder pig price averaged 17.63 yuan/kg, up 1.67% from the previous month. The hog inventory at the end of November noted above was down 0.7% from October, the first decline after four straight months of increases in hog inventories.

"Yesterday, the provincial government held a special meeting to investigate the development of 'Going Global' in agriculture. The vice governor stressed that Hubei agriculture has had a lot of success in the “going global” strategy, and we must plan to intensify, integrate resources, cultivate personnel, speed up overseas agricultural development. Since the 1970s, the province has undertaken agricultural projects in Sierra Leone, Congo, and Togo in rice breeding demonstration and training. Last year, our province undertook four projects with value of over 80 million yuan (over US$11 million) to send 46 experts and technicians to Mozambique, Equatorial Guinea, and Tanzania. Our province set up the Lianfeng Overseas Agricultural Development Company and began construction of an agricultural technology demonstration center in Mozambique, the first of a set of 14 planned African-assistance agricultural technology centers. Lianfeng Co. also took the opportunity to invest in a building materials factory, and built a Hubei Friendship Farm. The provincial seed group exported nearly 5 million kg of seed last year with a value of over US$9 million, accounting for 48.6% of the company’s sales, spreading Hubei seeds from Asia to Africa."

Thursday, January 7, 2010

In China's collective ownership system for rural land, leaders have made clear that cropland can not be used as collateral for a loan. China's leaders acknowledge that farmers need to get loans and their lack of assets to secure them is a problem. But they are worried about what happens if a loan secured by farmland goes into foreclosure--farmers lose their land and their main means of support. Forests are not as sensitive as cropland, so the government has allowed forest land to be used as collateral in recent years. There are experiments with marketizing other kinds of rural land and housing as well.

A Farmers Daily article today advertises the Agricultural Development Bank of China's (ADBC) forest loan program that began in September 2006. As of November 2009, ADBC loans secured by collective forest rights totaled 5.3 billion yuan. Most of the money is going to public works and big companies. Of the loan total, 1.1 billion yuan supported industrialized enterprises, 520 million yuan supported small forestry enterprises, and 3.7 billion yuan supported forest infrastructure projects.

ADBC and the National Forestry Bureau jointly established a cooperative system in which forestry departments recommend projects, the bank evaluates the loans, and the two parties jointly supervise the project. In addition to the loans secured by forest property rights, in some projects other assets are used as collateral or other guarantee methods are used. The loans generally are for 5-8 years, but no longer than 10 years. Working capital loans are for 1 year and for some enterprises 2-3 year intermediate term loans are given. Generally the interest rate is the benchmark set by the Peoples Bank of China. The rate can’t be raised. Discounted rates are given for projects with public benefits.

Wednesday, January 6, 2010

This is an article I came across this week produced by the Shanxi Province branch of Xinhua News Service in 2004. It's more than 5 years old and China has been working on these problems, but environmental monitoring reports published this year suggest that the problems persist. My translation of the article follows:

When people talk about pollution, they mostly discuss industry. In fact, nonpoint pollution from agriculture is hard to track and control. From “lean meat powder”(clenbuterol) to toxic food, from food pollution to soil degradation, agricultural pollution is a heavy topic.

Sewage is often discharged directly into wager supplies.

The reporter went to visit some rural areas near the city of Taiyuan. Farmers there use large amounts of chemical fertilizer to increase soil fertility. One farmer said: “Before we used two bags of fertilizer for 5 mu of land, but now we use three or four bags.” The reporter asked, “Why not use household waste as fertilizer?” The response: “That’s too much trouble!”

White pollution in fields

According to the Shanxi soil fertility station, one-third of chemical fertilizer is absorbed by crops, one third goes into the air, and one third accumulates in the soil. Most "blind use" of fertilizer has become a kind of predatory development. It not only has little effect on growth of crops, but also undermines the internal structure of the soil, causes soil compaction and loss of fertility.

Soil calcification is serious in many areas

Many farms dump manure in waterways or pile it up randomly. After entering bodies of water or shallow groundwater, it consumes a lot of oxygen, so other microorganisms can’t live in the water, causing a serious “organic pollution.” Surveys show that one cow’s discharge of wastewater is more than that of 22 people, and a pig produces as much waste waster as 7 people.

The reporter heard that in Jinyuan district a farmer lost fish equivalent to 10,000 kg because a pig farm dumped waste in the pond, reducing the oxygen in the water and fish died of hypoxia.

In pursuit of high yield and pest control, high use of fertilizer and pesticides creates pollution and serious health hazards. According to Mininstry of Agriculture statistics: pesticide annual applications on 95% or more of crops, fruit trees, and flowers total 800,000-1 million metric tons. This explains why our country’s pesticide pollution has reached a serious level. Measures must be taken to address it.

In the first half of this year, MOA went to some supermarkets in Taiyuan, wholesale markets to test vegetables. 16% of samples were over the national standard limits. In April, testing in supermarkets and vegetable production areas by the Shanxi agricultural dept found 45 out of 76 samples were over limits. Of those, cabbage, spinach leafy vegetables had clearly higher residue levels than tomatoes and eggplant. Heavy metals like mercury were double or more the usual levels in each type of vegetable. Workers said, “If a person eats mercury-contaminated food for a long period, they can be chronically poisoned, experiencing physical and memory loss, dizziness, mood swings, sleep loss, and other symptoms. Testing by Shanxi agricultural officials in vegetable production areas conducted in June found standards were not met in 18 out of 24 samples.

The Provincial environmental protection testing center supplied materials showing that agricultural pollution is getting worse and is a threat to the safety and quality of agricultural products. Industrial pollution, fertilizer, pesticides, and hormone use, is serious on 1.2 million mu (198,000 acres); agricultural chemical use is heaviest in Taiyuan, Linfen, Datong cities suburbs. Some 10 million mu (1.65 million acres) are relatively polluted, mostly in Taiyuan, Linfen, Yuncheng grain and cotton producing areas, with pesticide, fertilizer, and heavy metal pollution. The environmental protection station tested 99 samples of 3 vegetable types in 33 markets and found the quality and safety of vegs has varying degrees of pollution, especially heavy metal contamination in this city’s veg production area, worse than in previous years. This year pollution from large scale animal waste and unreasonable use of pesticides and fertilizer has been on a rising trend.

The reporter found that farmers trying to cut costs use pesticides with low prices, high toxicity and high residues. In Xiaodian district, a major vegetable-producing area, many vegetable farmers use a type of black market pesticide. Farmers said it can keep leaves green and promote growth. The reporter asked, “Do you eat these in your home?” The farmer smiled mysteriously, shook his head, and replied, “We don’t eat this kind ourselves.”

An informed source told the reporter this is actually a prohibited highly toxic pesticide that can accumulate in roots and stems over long periods of use, producing “toxic vegetables.” But the price is half that of government-approved pesticides, saving farmers over 300 yuan in expenses per mu. Driven by profits, farmers secretly use the prohibited substance.

In greenhouse production farmers use toxic pesticides to kill pests in the ground, contributing to high pesticide residues. One farmer justifies it by saying, “In recent years pest pressures have become more serious. If we don’t use some toxic pesticides we can’t keep pests under control.”

Investigation shows that high fertilizer use has already contaminated surface and ground water, and pesticide monitoring shows residues are becoming more serious. Insecticides account for about 78% of pesticides, mainly highly toxic ones like methamidophos and dichlorvos. Surveys by the plant protection department showed that 32.8% of farmers used highly toxic pesticides on leafy vegetables and pesticide use is increasing 10% or more annually.

The reasons are current and historical. Most agricultural pollution is from sediment from soil erosion. This sediment contains various chemical substances that constitute agricultural pollution. Nitrogen and phosphorus from the crop fertilization process and animal farms accumulates on the soil surface, which is from there easily washed into bodies of water by rain and contaminating irrigation water downstream.

A January 5 article in China Commerce News describes the city of Beijing's new three-prong food safety control system consisting of government monitoring, company self-checks, and third-party testing. City commerce bureau vice chair Wang Jianhua said 30 million yuan in special funds were allocated by the city government in 2009 for food safety testing equipment placed in 114 markets, supermarket and malls.

The reporter notes that many shoppers entering the Maliandao Carrefour Supermarket noticed a “Food Safety Self-Testing Lab” sign on the cash registers as they came in the door. Computers and testing equipment fill a 7-8 square meter room. The head of the city commerce bureau food safety monitoring center told the reporter that this quick-testing ewquipment can check for 43 kinds of toxic substances, such as pesticide residues on vegetables, sulfoxylate, and formaldehyde. Ten large markets and supermarkets with testing centers include Carrefour, Xinfadi wholesale market, and Wal-Mart. Each market got 1.5 million yuan in funds from the city government to purchase food safety testing equipment.

The reporter went to Guanjinglong market in Fengtai district to investigate. A worker from the commerce bureau was in the self-testing lab offering training. Daily tests on samples of vegetables and fresh meats are conducted here. Related information is posted on a web site. The commerce department can look up test results to monitor the food safety situation. In 2010, quick-testing equipment will be placed in 100 additional markets where conditions are suitable. All information will be posted on the Internet in the future.

The reporter visited the Fengtai district branch of the commerce bureau’s food safety monitoring center and found it contained the most modern laboratory equipment. The vice-chairman of the commerce bureau said the city has food safety branch centers in 6 districts and 13 laboratories for food testing. In addition, 20 testing organizations meeting national regulatory standards have become third-party testing centers. The city’s commerce bureau, quality and technical supervision bureau, health department, inspection and quarantine bureau, and agriculture department jointly form Beijing’s food safety supervision and control system.

Tuesday, January 5, 2010

This week, the communist party is expected to issue a seventh consecutive “Number One Document” highlighting rural policy as a priority in 2010. This year’s document is expected to highlight improved treatment of rural migrants and higher living standards for farmers. The main emphases are stabilizing grain supply, increasing income and living standards, coordinated rural-urban growth, strengthening infrastructure.

While the rest of the world sees China as the bright spot in the world economy, Chinese leaders seem to be pretty nervous about the state of the rural economy. As reported last month on this blog, the December meeting on rural work in 2010 stressed that rural and agricultural development is still facing an “extremely grim situation.” An article describing this year’s rural policy prospects repeats this assessment, and warns long-term constraints have not been eliminated and new unexpected conflicts are popping up. According to the article, 2010 will be a complicated and extremely difficult year.

The top leaders, Hu Jintao and Wen Jiabao, celebrated the new year by inspecting rural areas in Hebei and Heilongjiang Provinces, chatting up villagers and promising another round of rural policies this year. They promised even more rural policies in 2010, following an unprecedented expansion of rural spending and subsidies in 2009.

The one specific policy measure mentioned by Wen Jiabao in his visit with villagers in Heilongjiang was that the minimum price for rice will be raised again this year. A State Council researcher says that rural subsidies will be increased and spread more broadly. Subsidies will be extended to some crops—peanuts for example—that didn’t receive them before. Other policies recently highlighted include the new rural old-age insurance program and a more fair system for requisitioning rural land for urban uses.

Sunday, January 3, 2010

In the last couple of years Chinese companies have been flying in foreign breeding pigs to build massive breeding farms and take advantage of subsidies for "improved breeds." But at the same time, a smaller group of entrepreneurs are carving out a niche to preserve local and "wild" pork breeds in China's new factory-style pork industry.

Chinese consumers claim that pork turned out by factory-style farms lacks flavor. They yearn for the strong flavor and smell of traditional pork breeds. Everyone has their preferred local type of pork (tu zhu), such as Baoshan pigs in Sichuan and Minzhu in Heilongjiang. Companies have sprung up to process local pork and sell it to supermarkets either as fresh pork or as sausage or other processed products. Some contract with farmers to raise local breeds of pigs.

In Gansu Province, some farmers are raising "wild pigs" (ye zhu). In their natural state, wild pigs run around in the mountains rooting for food. In comparison with domesticated pigs that just eat and sleep all day, wild pigs have leaner meat that is high in protein and lineolic acid. Their meat is believed to prevent cancer and have other therapeutic effects. Some think it makes women more beautiful. The price of wild pork in Gansu is said to be 50 yuan per kg, five times the price of conventional pork.

The "wild" pigs are actually a cross between wild and domestic pigs. They have long black bristles and tusks. The cross-bred pigs are easier to handle and have faster weight gain than pure wild pigs. However, compared with domesticated pig breeds, wild pig sows have relatively small litters (usually 7-8 piglets) and they gain weight more slowly. Wild pigs get more exercise, so they use up more energy and gain weight more slowly. The meat is higher in protein and lower in fat. It's high in lineolic acid. Wild pigs eat less grain, more "green feeds," including sweet potato vines, stalks, and sprouts. Photo from http://www.foodqs.cn/news/gnspzs01/2007814105214283.htmNewspaper stories about wild pig-raising point to a strong entrepreneurial spirit in rural China. An article from Gansu describes the experience of a former migrant worker named Meng, who was intrigued by stories about big money farmers were earning in his wife's home town in Guizhou Province. A program on TV about a farmer in Jiangxi inspired him to quit his job in a bicycle factory in Shenzhen and go home to raise wild pigs. He invested 600,000 yuan in the project, using a combination of savings, loans from friends and family, and bank loans. He received a lot of "support" from the township government, which is going all-out to attract investment. He bought 2 purebred wild boars and 7 cross-bred pigs from a company for 10,000 yuan.

According to Meng, a "wild" cross-bred piglet costs 1,000 yuan, compared with 400 yuan for a domesticated breed. A sow can produce two litters per year with fewer than 10 piglets each. He figures you can make a profit of 100 yuan per piglet, for a total of up to 20,000 yuan per year. He expects to earn 50,000-60,000 yuan next year.

A similar article in the Lanzhou Evening News describes a young man named Cheng who went into wild pig-raising after selling computers for eight years. He bought 4 wild pigs from the northeast and invested 400,000 yuan to start his venture aimed at being the first to deliver wild pork to dinner tables in Baiyin City of Gansu.

It's not an easy business. Wild pigs can be hard to handle. A reporter observes that Mr. Cheng's pigs are behind a sturdy steel fence. Mr. Meng's first litter was crushed to death by the sow.

Some people complain that pork from so-called wild pigs lacks the strong taste expected by consumers. Is it really wild pork if the pigs are crossed with domesticated breeds, raised on concrete slabs, and eat the same grain-based diet as conventional pigs?

One article offers advice on improving the "wild" flavor. After weaning, pigs can be raised like domesticated pigs until they reach a weight of about 30 kg. Using mainly an energy- and protein-rich feed promotes weight gain at young age. Gradually, coarse green feeds can be introduced and their proportion increased as the pig nears slaughter weight. Over 60 kg. the diet should be 50% or more "green feed" for the final two months until they reach a slaugther weight of 80 kg. Where possible, pigs should be allowed to graze so they have access to plants and can root in the soil. The exercise firms up their muscles, making the meat more lean.

Then there is the ever-present problem of fakes. When a special product (e.g. "wild," "local," "organic," "green food") brings a high price premium, there is strong incentive to mislabel conventional products. In Xiamen, Fujian Province, it is reported that some 300 local-breed pigs are sold daily, but a reporter found that farms produce only 100 (i.e. 200 are conventional breed pigs being passed off as local breeds.) If pork from local breeds is not easily distinguishable from conventional pork, it will be harder to convince consumers to pay the premium price and the high-cost niche product will be crowded out of the market by the low-cost product.